Non-Resident Speculation Tax – Buyers (and realtors) be aware!
Note: This post, like all others on this website, is intended to be general information only limited to the date published and is not to be relied upon as legal advice. For further information, please contact a lawyer.
If you are purchasing a property (“designated land” containing between one to six single family residences), it is important to be aware of the Non-Resident Speculation Tax (“NRST”). The NRST was implemented in 2017 by the Government of Ontario in an attempt to cool-off the market. Initially, the tax was 15% on the purchase price but has, as of March 30, 2022 been increased to 20% of the purchase price of the home. You read that correctly, 20% of the purchase price (value of consideration) of the home which means that for a property being purchased for $ 1 million, the buyer will be responsible to pay $ 200,000.00 to the Ontario Government if the NRST is applicable.
It goes without saying that whether this tax is applicable to you or not must be spotted prior to entering into the contract. If a buyer is not aware of this prior to signing the contract, it can lead to major problems at closing and possibly default of the agreement of purchase and sale.
Here are some basics of the NRST (subject to change but as the rules currently state):
i) It may apply to purchase of residential property located anywhere in Ontario;
ii) It applies to individuals that are not permanent residents or Canadian citizens (aka foreign nationals for the purposes of the NRST).
iii) The NRST is not a replacement of the Land Transfer Tax but is in addition to it.
iv) If multiple parties buy a property in which one individual is subject to the NRST, it applies to the overall purchase price. It is not proportionate to the share which is owned by the foreign national.
That being said, the NRST does contain exemptions that are important to explore upfront and prior to signing of the agreement of purchase and sale.
These exemptions include:
1. Nominee Exemption: available to those in the Ontario Immigrant Nominee Program. Among other rules, this exemption requires that the foreign national applies or certifies that an application to become a permanent resident will be submitted prior to expiry of the nominee certificate.
2. Protected Person Exemption for Refugees: available to those under section 95 of the Immigration and Refugee Protection Act (Canada).
3. Spousal Exemption: available for a foreign national who is the spouse of a permanent resident of Canada, Citizen of Canada, Nominee or a Protected Person. The definition for the purposes of this section is as per section 29 of the Family Law Act.
Rebate of the NRST:
After paying the NRST an individual may apply for a rebate once the foreign national becomes a permanent resident of Canada within four years from the date of purchase, hold the property alone or with their spouse and also occupy this property as their principal residence. Other rules apply and it is important to consult with the Ministry of Finance for all particulars or contact your representative.
Conclusion:
Buyers and their representatives must ensure that they are familiar with the large burden that is imposed at the time of closing. It does not hurt to ask for Identification to ensure the threshold is met or consult a lawyer prior to signing on the dotted line. Not only can it lead to issues on closing but a failure of the NRST where applicable may lead to additional tax, penalty and interest.
For your specific scenario, please contact a lawyer in advance of entering into a contract.
If you are purchasing a property (“designated land” containing between one to six single family residences), it is important to be aware of the Non-Resident Speculation Tax (“NRST”). The NRST was implemented in 2017 by the Government of Ontario in an attempt to cool-off the market. Initially, the tax was 15% on the purchase price but has, as of March 30, 2022 been increased to 20% of the purchase price of the home. You read that correctly, 20% of the purchase price (value of consideration) of the home which means that for a property being purchased for $ 1 million, the buyer will be responsible to pay $ 200,000.00 to the Ontario Government if the NRST is applicable.
It goes without saying that whether this tax is applicable to you or not must be spotted prior to entering into the contract. If a buyer is not aware of this prior to signing the contract, it can lead to major problems at closing and possibly default of the agreement of purchase and sale.
Here are some basics of the NRST (subject to change but as the rules currently state):
i) It may apply to purchase of residential property located anywhere in Ontario;
ii) It applies to individuals that are not permanent residents or Canadian citizens (aka foreign nationals for the purposes of the NRST).
iii) The NRST is not a replacement of the Land Transfer Tax but is in addition to it.
iv) If multiple parties buy a property in which one individual is subject to the NRST, it applies to the overall purchase price. It is not proportionate to the share which is owned by the foreign national.
That being said, the NRST does contain exemptions that are important to explore upfront and prior to signing of the agreement of purchase and sale.
These exemptions include:
1. Nominee Exemption: available to those in the Ontario Immigrant Nominee Program. Among other rules, this exemption requires that the foreign national applies or certifies that an application to become a permanent resident will be submitted prior to expiry of the nominee certificate.
2. Protected Person Exemption for Refugees: available to those under section 95 of the Immigration and Refugee Protection Act (Canada).
3. Spousal Exemption: available for a foreign national who is the spouse of a permanent resident of Canada, Citizen of Canada, Nominee or a Protected Person. The definition for the purposes of this section is as per section 29 of the Family Law Act.
Rebate of the NRST:
After paying the NRST an individual may apply for a rebate once the foreign national becomes a permanent resident of Canada within four years from the date of purchase, hold the property alone or with their spouse and also occupy this property as their principal residence. Other rules apply and it is important to consult with the Ministry of Finance for all particulars or contact your representative.
Conclusion:
Buyers and their representatives must ensure that they are familiar with the large burden that is imposed at the time of closing. It does not hurt to ask for Identification to ensure the threshold is met or consult a lawyer prior to signing on the dotted line. Not only can it lead to issues on closing but a failure of the NRST where applicable may lead to additional tax, penalty and interest.
For your specific scenario, please contact a lawyer in advance of entering into a contract.
